China's rise in the Pacific threatens to erode Australian influence. But it also offers us a chance to be part of the biggest infrastructure project in the world.
By David Wroe
22 JUNE 2018
In the Solomon Islands, a billion-dollar deal of major geopolitical importance may be about to be signed – without the relevant government minister being in the loop.
A proposal to build an airport and wharf complex for tourism in the Pacific Island nation currently has the tentative backing of a Chinese state-owned construction firm. But Solomons aviation minister Peter Agovaka – who should be most directly responsible for the project – knows next to nothing about it.
Instead, the proposal is being handled by the country’s minister of mines, Bradley Tovosia – his electorate, on the island of Guadalcanal, hosts the proposed site – and by the island's premier, Anthony Veke. Their talks have included meetings in China and Fiji.
Agovaka was philosophical when he was contacted by The Age and SMH, saying his cabinet colleague was dealing with the proposal “on a personal level”. He expected to be involved soon.
The intermediary in the discussions, meanwhile, is a 42-year-old Australian businessman, Victor Tang, who has a background working in casinos and hospitality. Tang said his agents were already negotiating with local landowners but the Chinese company - a large state-owned firm that has projects around the world, including in Australia - was “about 80 per cent” confident the deal would come to fruition.
The project, which could be worth up to $1 billion, is being taken seriously in the Solomons. Tang said some design work had been done and there would be a meeting of potential investors in the “next few weeks”.
It’s an ample demonstration of why the Turnbull government is so concerned about the murkiness of some Chinese investment and aid projects in the region.
As Beijing lays down the fibres and sinews that are setting Chinese standards on infrastructure from the south Pacific to eastern Europe, Australia is grappling with two huge questions: How does it buy into this global construction boom itself in a way that doesn’t play into China’s clear strategic ambitions?
And how does it respond to China’s massive ramping-up of infrastructure building in Australia’s neighbourhood and the threat that Canberra’s traditional influence will be eroded?
Children play near the new China-funded wharf in Luganville, Vanuatu. Photo: Alex Ellinghausen
Like the Romans
At the big-picture level, there is no doubt in the Australian foreign policy establishment that the Belt and Road Initiative (BRI) has a significant strategic objective.
“What BRI does is place China at the centre of economic activity and strengthen its resource supply lines. China is not a classic imperial power but, like the Romans, it understands that a road system can underpin an empire’s economic and strategic power,” said former Department of Foreign Affairs head Peter Varghese, now chancellor of the University of Queensland.
Department officials were blunt this month in a Senate hearing about China’s ambitions. It wants to dominate the region, stretching from the Indian Ocean to the Pacific. Australia’s interests, by contrast, lie in a “multipolar” region where Chinese power is balanced by a continued US presence and the rise or maintenance of other powers – India, Indonesia, Japan.
Narrowing the lens on strategic concerns, Australia is also worried that small countries such as Pacific island nations will be vulnerable to coercion by being saddled with unsustainable debt.
Foreign Minister Julie Bishop, in some of the frankest remarks by an Australian politician on the matter, said such countries must not see their sovereignty endangered.
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Ultimately, a concern is that some of these projects might have future dual uses and could serve military purposes. This is the obvious fear with the proposed Solomon Islands facility. Fears have also been raised by Australian defence experts about Vanuatu’s Chinese-built Luganville wharf.
But even if infrastructure development does not have a military purpose at first, the mere presence of Chinese projects and people might prompt the need for People’s Liberation Army forces.
As one government insider put it, it is wholly plausible that growing Chinese commercial activity in a Pacific nation might provoke a backlash among locals, even leading to political instability. Suddenly, there would be a need for Chinese military personnel.
Rory Medcalf, a former intelligence analyst who heads the Australian National University’s National Security College, refers to a kind of “mission creep”.
“This is how empires begin,” Medcalf notes. “And how they overstretch.”
The BRI is a web of infrastructure that spans continents. What is China's motive?
Highways to nowhere
As for how Australia itself engages with BRI, the weight of opinion among foreign policy hardheads is that we should be cautious and highly selective. If Australia has a chance to partner on a Chinese infrastructure project that serves our economic interests, doesn’t pose an intolerable strategic risk and meets our governance principles, we should consider it.
It can’t involve bribing local officials, it can’t unnecessarily damage the environment, and it can’t leave the host nation heavily indebted and therefore vulnerable to future Chinese coercion.
Fundamentally, it must contribute to the healthy development of a country that is a friend to Australia.
Bishop said a hypothetical highway in Papua New Guinea built as an Australia-China partnership must not be “a highway to nowhere but a highway to somewhere useful”.
“Where BRI projects are in our sphere of influence, we want to ensure they meet appropriate standards. We’re particularly concerned about the viability of economies in the region. We don’t want unsustainable debt burdens imposed upon the economies in the region,” Bishop said.
Australia must remain “very clear-eyed about our strategic interests” given this is China’s vehicle “for greater political and strategic influence in the region”.
“As long as we meet those requirements, the BRI can be something that we can partner with China on. But the realities are at present the funding mechanisms remain unclear. There’s a lot still to know about BRI. A lot.”
There is no sign the government is keen to back any BRI projects in Australia itself.
Trade Minister Steven Ciobo signed a memorandum of understanding last September covering Australian infrastructure co-operation with China in third countries, including BRI projects, although the government has refused to release the document.
Ciobo said the government was “working to identify and facilitate access to commercial opportunities resulting from BRI”.
The “third countries” stipulation in Ciobo’s MOU was important: there is no sign the government is keen to back any BRI projects in Australia itself.
The best-known Chinese investment in Australia of late is the sale of Darwin Port to the Chinese-owned firm Landbridge, which employs former trade minister Andrew Robb as a senior consultant.
Defence maintained that the sale – which is not itself a BRI project – posed no national security risk, and Landbridge Australia chief, Mike Hughes, said it was simply commercially attractive because the port ships a wide range of commodities “all of which Landbridge is bullish about”.
Still, the episode triggered a hard look at how such sales are scrutinised and led to changes that make sure national security is more deeply woven into future decisions.
The opposition’s policy is much the same as the government’s, with foreign affairs spokeswoman Penny Wong saying a Labor government would judge each project on national interest grounds. She expressed confidence there would be opportunities for collaborations with China and said these would be needed to help the region reach its economic potential.
Malcolm Turnbull speaks with Xi Jinping at an APEC summit in 2017. Photo: Alex Ellinghausen
‘We should be more embracing’
Of course, any Australian company can work on a BRI project if they are contracted by a Chinese firm. But a more national approach would mean the government facilitating the involvement of Australian firms.
Some in the business community argue that Australia as a nation should do more to get on board. Elizabeth Gaines, head of Fortescue – which has closer ties to China than most companies – said the mining firm believes “Australia should be more embracing of the BRI”.
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John Brumby, the former Victorian premier who is president of the Australia China Business Council (ACBC), paints BRI as virtually an unalloyed good that will boost growth, create opportunities for Australian businesses and also benefit the nation through increased trade in Asia.
Brumby, who is also an Australian director of the Chinese telco giant Huawei, said if Australia were “a fully fledged, signed-on member” of BRI, the opportunities for local firms would increase and there might be a project or two in Australia, notably in the north.
A lot of the caution is based around … an inability to grasp the reality that the world order is changing.
Chinese President Xi Jinping at one point flagged linking the BRI to the Northern Australia Infrastructure Facility, but the Turnbull government eventually declined.
As for strategic and security concerns, Brumby said: “I do think that a lot of the caution that we see in relation to China – not all of it but much of it – is not based around legitimate security concerns. It’s based around protectionism by the United States and an inability to grasp the reality that the world order is changing.”
Finally, he argued, signing on to BRI would help mend our relations with China.
“To state the obvious, they’re in a difficult place ... We’re getting increasing reports at ACBC of difficulties for our exporters getting products into China ... Many goods that used to take a day to get through customs now taking a week, and so on.
“Our relationship needs rescuing ... and a warmer embrace of BRI might be one way to do that.”
He said Australia could learn from New Zealand, which was the first Western country to sign up in the form of a Memorandum of Arrangement with China.
China's Foreign Minister, Wang Yi, meets New Zealand Foreign Minister Winston Peters in Beijing in May. Photo: AP
Following New Zealand’s lead
But it’s not clear what New Zealand has gained. More than a year on from the signing of the rather vague document, a spokesman for Trade Minister David Parker, when asked what it had delivered New Zealand, said it was “still early days and we are still working through this process for engagement”.
In March, New Zealand Foreign Minister Winston Peters openly questioned whether the previous government should even have signed the MOA.
My assumption is NZ saw it as a low-cost way of building political capital with China.
Medcalf said New Zealand had in fact signed “a blank cheque” that allowed Xi to tell his own people that Western countries were lining up to sign on, while internationally reinforcing the narrative “of China as an unstoppable geoeconomic and strategic force”.
“My assumption is NZ saw it as a low-cost way of building political capital with China,” Medcalf said.
If the Australia-China relationship needs repair, some ask who is actually to blame for the current state of it. One seasoned figure in Canberra makes this point: Malcolm Turnbull quoted Mao Zedong in a way that upset Beijing, the government used some moderately overblown rhetoric on a few occasions, and the next minute China was punishing Australian beef and wine producers.
“Is that a country on whom you want to become more economically dependent?” the figure said.
PNG leader Peter O'Neill meets Xi Jinping in Beijing on June 21. Photo: AP
Do we have a choice?
But Warwick Smith, the former Howard government minister who heads the government-funded Australia-China Council and serves as an ANZ China director, argues “there is a reality to this which is inescapable”.
China’s annual growth in recent years has been about the size of Australia’s entire economy.
“Reality will prevail. The wheel of commerce keeps turning. Money will follow trade and trade will follow money,” Smith said.
However, as important as China is, the Turnbull government’s foreign policy white paper made it clear Australia will be looking to diversify its relationships in all senses.
Is Australia going to be able to stick a spanner in its works? The Americans haven’t.
China is emerging into a very different world to that which the US grew into as an unrivalled economic superpower in the 1800s. The US will remain strong, other countries such as India and Indonesia are rising - though more slowly than China - and Europe remains relevant. This is a common view in the government.
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Yet the BRI is going ahead whether Australia plays a part or not. Most observers agree there’s little we can do to shape the initiative on a large scale.
As one senior official put it: “Is Australia going to be able to stick a spanner in its works? The Americans haven’t.”
Unlike the China-led Asian Infrastructure and Investment Bank, which Australia signed up to after a lengthy period of playing hard to get - arguably helping drive some governance improvements in the process - the BRI does not have set rules and standards.
Australia can put demands on projects it gets involved in, but not on the initiative as a whole - at least not alone.
"Ridiculous": Chinese ambassador Cheng Jingye dismisses the notion that Beijing creates debt traps. Photo: Alex Ellinghausen
Don’t trap the neighbours
But there are things Australia can do with like-minded countries. Japan, for instance, is a huge infrastructure funder across Asia. Bishop also names the US, Britain, France, New Zealand, and even Germany as countries that could help provide “alternatives” in the Pacific to the BRI.
“What we don’t want is for countries to have no other options,” Bishop said. “We think there has to be a suite of options available to them. And Australia should take a very proactive part in that.”
In blunter terms than Australia has used before, Bishop lays out the government’s concerns that BRI, unless it is pressured through competition to lift its standards, could threaten the sovereignty of small Pacific nations.
“We want to ensure … that they are not trapped into unsustainable debt outcomes. The trap can then be a debt-for-equity swap and they have lost their sovereignty,” she said.
“We’re concerned that the consequences of entering into some of these financing arrangements will be detrimental to their long-term sovereignty.”
After Bishop's remarks were reported this week, Chinese Ambassador Cheng Jingye told reporters in Canberra it was "ridiculous" to suggest Beijing was threatening the sovereignty of small island nations by saddling them with unsustainable debt.
Medcalf said any competition would be “asymmetric”. No leader, he said, is seriously proposing going head-to-head with China on steel and concrete.
Australia has cut its overall aid budget repeatedly, though it has directed what’s left more heavily towards the Pacific, so that it is actually spending more there now than ever.
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But we can pick our battles to maximise our influence, Medcalf said, for instance by concentrating on telecommunications development, rivalling Xi’s “digital Silk Road”, as Australia is doing by laying an undersea internet cable to PNG and the Solomons.
Australia’s development assistance can help educate officials in small countries to better judge whether infrastructure offers from countries such as China are constructive, or white elephants that will leave them indebted.
Bishop revealed she had already discussed this with British Foreign Secretary Boris Johnson.
“Can Australia and Britain assist them in advice on what would be an appropriate sustainable investment for them?” she said.
Xi Jinping in the Great Hall of the People in Beijing.Photo: AP
Xi bearing gifts
Varghese agrees there’s a case for putting up competitive alternatives, although he points out “you do not want infrastructure to become the new battleground in the way aid was during the Cold War”.
Australia will have to hold its nerve as the Chinese steel is forged and the concrete flows. PNG Prime Minister Peter O'Neill was poised this week to sign up formally to the BRI following a meeting with Xi in China.
Xi, in turn, will likely turn up to APEC in PNG in November bearing gifts in the form of new BRI projects, says Medcalf.
“That will be a pretty bracing moment for Australia because from that point on, we’ll be competing much more directly with China in PNG,” he said.
Bracing doesn’t mean panicking, he stresses. This is the sort of thing rising powers do. It’s just that China’s rise has been particularly swift, and the visual, visceral demonstrations of its growing power - the roads, highways, ports, and military facilities on artificial islands - are spreading with unprecedented speed.
The trick, says one former national security insider, is to deal with BRI on our terms, not China’s.
Mirroring a strong strain of thought in Canberra, the insider said Australia should be a “fussy customer and one that is not too desperate”.
“Where we have genuine national interest concerns,” he concludes, “we should push back robustly, use all the instruments of our national power, like any grown-up country.”